(April 9): The Bank of Japan will probably increase its benchmark rate this month to avoid falling behind on controlling inflation, according to a former executive director at the central bank.
“If I were in the BOJ’s position, I’d say it’s about time to act,” Masaaki Kaizuka, the former director of the central bank’s economics department, said in an interview on Wednesday. “The war is making the economic environment inflationary and if inflation expectations really start to take off, that will raise the risk of falling behind the curve.”
The remarks came as news of a temporary ceasefire of Iran war triggered a drop in oil prices and sent a wave of relief through global financial markets. Despite the fall in crude, oil prices look set to remain elevated, putting pressure on costs throughout the economy.
BOJ watchers are waiting to see if Governor Kazuo Ueda will give a clear signal on the likely outcome of the rate decision ahead of a policy announcement on April 28 as he did in December before a rate increase.
Kaizuka, who left the BOJ in 2024, said the recent release of BOJ economic indicators points to the bank’s intention to raise rates, adding that there was no downgrade to its assessment of regional economies earlier this week, despite the tensions in the Middle East and the spike in oil prices.
Late last month, the central bank released a new set of data showing that price growth is around the BOJ’s 2% target. The bank also recalculated the output gap to show it’s been positive since 2022. That’s in contrast with an earlier estimate indicating the gap has been below zero for more than five years.
See also: Japan’s consumer confidence tumbles by most since Covid pandemic
“To anyone looking at those indicators, it feels like they’re clearly laying the groundwork for something,” Kaizuka said, referring to the release of the new data points. “It looks pretty likely they’re going to move this time.”
In December Ueda said the central bank would consider the pros and cons of raising the rate at its meeting, a comment widely seen as a signal that the BOJ would hike. Ueda’s next scheduled public speaking engagement comes on Monday.
Still, uncertainty remains as President Donald Trump could drastically change the outlook of the global economy in an instant. Japanese Prime Minister Sanae Takaichi emphasized the importance of a lasting peace agreement during a phone call with Iranian President Masoud Pezeshkian on Wednesday.
See also: BOJ keeps options open by citing dual risks in regional reports
“If Trump does something unwise the day before the policy meeting, everything could get blown away,” Kaizuka said, referring to the possibility of a rate hike being scrapped at the last moment. “The BOJ probably wouldn’t write it explicitly in the Outlook Report, but the ‘Trump risk’ is probably the economy’s biggest risk factor.”
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